Crown Holdings, Inc. (CCK) Q2 2016 Earnings Report, Transcript and Summary

Good morning and welcome to Crown Holdings Second Quarter 2016 Earnings Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Thomas Kelly, Senior Vice President and Chief Financial Officer. Sir, you may begin. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Thank you, Dale, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. I will first take you through the numbers and Tim will review the operational performance. On this call as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K for 2015 and subsequent filings. Earnings per share were $1.21 in the second quarter of 2016, compared to $1.02 in the second quarter of last year. Adjusted earnings per share were $1.19 in the quarter compared $1.03 in 2015. Net sales for the quarter were down 6% at actual exchange rates and down 3% at constant currency rates, primarily due to the pass-through of lower material costs. Segment income of $288 million in the quarter improved 6%, or 10% at constant currency levels, due to strong performances in both Americas Beverage and European Beverage. The adjusted tax rate of 25.1% was in line with our expectations for the quarter and we expect a full year rate of approximately 26%. Adjusting the potential impact of Brexit, I can tell you that approximately 7% of our revenue comes from our UK operations, and based on what we've seen so far, we do not expect a significant impact on our 2016 results. Beyond that, we, like everyone else, will have to wait until the terms of the withdrawal are fully negotiated. Our full year guidance of adjusted earnings per share is now between $3.80 and $3.95 per share. This compares to our previous guidance of between $3.70 and $3.90 per share. We currently estimated adjusted third quarter earnings of between $1.25 and $1.35 per share. We are maintaining our estimate of full year free cash flow of approximately $425 million and are increasing our estimate of capital spending to approximately $450 million. We expect the increase in capital spending from our previous estimates will be offset by improved working capital performance. I'll now turn it over to Tim. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you, Tom, and good morning to everyone. As shown in last night's second quarter 2016 earnings release and as Tom just described, we had another strong quarter and after six months are well ahead of the prior year across all metrics, including segment income, EBITDA, net earnings and earnings per share. All operations performed well especially global beverage operations with notable performances delivered in the Americas, Europe and Southeast Asia. The impact of currency on sales and segment income is shown in the release, so my comments regarding second quarter segment operating performance will be on a currency-neutral basis. In Americas Beverage, segment income advanced 13% primarily due to increased unit volumes of 4% over the prior year and lower aluminum premiums in Brazil. In North America, that is Canada and the United States, unit volumes increased 3.5%, while Central and South American volumes increased by 5% in the aggregate. Our two large beverage can projects in Monterrey, Mexico, and Nichols, New York remain on schedule for December 2016 and January 2017 startups. And as described in last night's release, the expansion of production capacity to our Colombian beverage can facility is expected to be completed in the second quarter of 2017. In North American Food, segment income declined by $2 million mainly as a result of lower soup volumes and a slight delay in the early fruit pack. From what we can see, we expect the various food packs to be about average this year. Segment income in European Beverage increased 18% over the prior year, as benefits from higher sales unit volumes across Southern and Eastern Europe, improvements to operating performance and lower aluminum premiums offset lower volumes across several Middle Eastern operations. As previously, discussed the installation of a second beverage can production line to the Osmaniye, Turkey facility is expected to be completed during the fourth quarter of 2016. Additionally, and as discussed in last night's release, we will begin installation of the second high-speed aluminum beverage can line to our Custines, France facility. Commercial startup of the line is expected in April of 2017, and that will complete that plant's conversion from steel to aluminum. We are also pleased to report that despite the temporary unrest in Turkey last week, all of our employees are safely accounted for, and there has been no disruption to our or customer operations. European food had another solid quarter, as 2% volume gains offset lower production activity in the quarter. Volume gains were recorded across Iberia, Africa and Russia, more than offsetting the impact of a late start to the 2016 campaign across Northwest Europe, the result of poor weather conditions. Severe flooding across Northwest Europe disrupted our production schedules, and it remains to be seen what effect the floods will have on crop yields. Beverage can unit volumes in Asia Pacific were flat in the quarter, as double-digit growth in Southeast Asia offset continue to account pruning in China. Segment income was in line with the prior year due to the positive mix of more Southeast Asian volume offsetting lower less profitable Chinese volume and pricing in China. Our new plant in Phnom Penh, Cambodia, our third plant in that country, commenced commercial operations during the second quarter and is progressing along its learning curve. Segment income in the non-reportables was in line with the prior year as higher aerosol volumes in both the United States and Europe offset the impact from the 2015 divestiture of the five specialty packaging plants we have previously discussed. And Dale, with that, we're ready to take questions at this point.

That is noted. Let me open the lines for the question and answer. One moment please. And our first question comes from Adam Josephson. Opening your line now.

Tim and Tom.

Sir, your line is now open. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Good morning, Adam. Timothy J. Donahue - President, Chief Executive Officer & Director: Good morning, Adam.

Good morning, Tim, Tom. Just three for – Tom, two for you. Just one on working capital. So, you're expecting a source of $50 million versus flat before. Can you just go into why? Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Yeah, we've been running a little better on average working capital through the first two quarters here. And it looks like that's going to stick to the end of year. It's probably a little bit more on the payable side than anything else, but we feel pretty comfortable with that number now.

Thanks, Tom. And one on CapEx. You're guiding to $450 million this year, do you expect CapEx to be any lower in 2017, or any preliminary thoughts you have there just in light of these new projects? Timothy J. Donahue - President, Chief Executive Officer & Director: It's probably a little too early, Adam, to give you a feel for what we think for next year. But I would say that we still see significant opportunities in the global beverage landscape. And as we look at uses of our capital and our cash flow, we believe that the proper use of that where we have very good projects that we can get money into ground that will generate earnings and free cash flow in the future is a wise use of capital. So, a long way around saying that I can't comment on whether it's going to be $450 million next year. But I think it will be at least $400 million, and we'll see how it progresses through the back half of this year and what opportunities arise and where we think we can be successful.

Thanks, Tim. And just one on Ball's acquisition of Rexam, can you talk about any meaningful changes in industry competitive dynamics following the deal either in the U.S., Europe or Brazil, and can you talk about why you might expect any notable changes? Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah, Adam. With all due respect, I think the other parties have been precluded from discussing their deal while the deal was in progress. It is now complete and I would ask all of you to leave your questions on this call to the performance of Crown and the future performance of Crown, and you'll have ample opportunity to ask those questions to other companies in the future. Beyond that, I don't have any further comment.

Sure. And just one last one on the European bev can market, Tim. Obviously, it sounds like operating rates have been in the mid-90%s, so pretty full. Obviously, you've got the Can-Pack announcement and you have Rexam talking about pricing pressure over the past year and a half or so, European economy, who knows what's really going on. So can you just talk about how tight you think the European bev can market is and what impacts you expect to Can-Pack addition to have? Thanks very much. Timothy J. Donahue - President, Chief Executive Officer & Director: Well, I think the market continues to be tight, I think despite the additions by the other competitor that you discussed, the market's going to continue to be tight regardless, because the market continues to grow. And so we'll see what's happening. Obviously, the market does grow, we look at the opportunities just as the other companies look at the opportunities, but I don't think there's any real negative impact from the potential increase in capacity you just mentioned. We have a market that's growing and there's nothing like growth, right. Growth cures a lot of issues and we're happy to be in a business like that that's growing.

Thanks a lot, Tim. Best of luck. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you.

Thank you. And our next question comes from George Staphos of Bank of America Merrill Lynch. Sir, your line is now open.

Thank you. Hi guys, good morning. Thanks for all the details. I guess first question I had, Tim and Tom, if you had mentioned it, was there an aggregate volume figure you cited for European Beverage? And could you parse a bit further the differential between the Middle East where it sounded like you had a little bit more challenge relative to the rest of the region? Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. In total, George, we are down 2% in our segment for the quarter, and that's a high single-digit decline in the Middle East and a low-single digit increase in the Continent.

Okay. Fair enough. And to the previous question from Adam and the broader question of capital usage and capacity and returns. When you look at the landscape and opportunities to use your cash flow, are the returns in new projects as good as what you would have seen, I don't know, five years ago, three years ago? Have returns, perhaps, diminished but are still significantly better than what you think your cost of capital? Any thoughts there would be helpful. Thank you. And I have one follow-on. Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. Well, I think, obviously, with interest rates being extremely low and trending lower, cost of capital continues to decline. So it's easy, in my view, to justify projects to beat your cost of capital in this environment. So I think you have to look out a little longer and ascribe, perhaps, a higher interest rate and drive your cost of capital up before you even look at that. But having said that, we are very pleased with the returns we're seeing on various projects that are put in front of us. And it's not one of where we're looking for projects. We're obviously – we're telling some of our guys, we're just not going to get to that, guys. We just can't afford to do everything, but we do have a lot of opportunities.

Tim, just to follow up on that. So I was initially talking about the spread versus your cost of capital. Obviously, that's come down, and that presents both challenges and opportunities down the road. But just the absolute return, you didn't comment specifically, maybe you prefer not to, but is the return that you're seeing on projects now the same as what you would have seen, say, three years or five years ago? And then my last question, and I'll turn it over and try to come back. How have your views, specifically on China, been evolving over the last three months and six months? Again, do you see it as core to the portfolio, recognizing it's not huge in your business, nonetheless it's been an impediment in recent results. How core do you see that to the overall business? Thanks. I'll turn it over. Timothy J. Donahue - President, Chief Executive Officer & Director: So on a cost of capital, George, I would say that in most cases, the projects we have right now and the projects we're considering are at least as good as they're presented – as projects that were presented three years, four years, five years ago.

Thank you. Timothy J. Donahue - President, Chief Executive Officer & Director: And then, clearly, if you tie that to our experience in China, it's hard to believe any project won't perform better than some of the China projects that we evaluated three years or four years ago. We've talked about the disappointment we have in China. The market evolved even better than we thought it would. What didn't evolve or what evolved was a pricing environment that was far worse than we anticipated. So, is China core? Well, no. It doesn't have to be core. It's less than $275 million in revenues and purposely declining right now. We are clearly trying to manage an Asian business which we believe is a tremendous asset to the company on the back of a Southeast Asian business, and so far, we've been able to manage the China problem. But having said that, no, China's not core. It is what it is. We have capital invested there, and we continue to try to reduce the costs that we have there. And whatever happens, happens. We either reduce the costs, and we continue to hold on until things get better in the future, or perhaps, we find another avenue, which I'm not prepared to talk about right now.

Okay. Thank you, sir. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from Anthony Pettinari of Citi. Sir, your line is now open.

Good morning. Just stepping back to CapEx. The increase from $400 million to $450 million, is that purely the result of the Colombia project or are you pulling forward spend on some other projects? Can you just kind of bridge that? And then, you talked about growth opportunities in 2017 as well. Do you have additional steel to aluminum conversions, post Custines, that would maybe turn up in 2017? Timothy J. Donahue - President, Chief Executive Officer & Director: So, the increase from $400 million to $450 million is – it's not just Colombia expansion, it's the Custines. Custines will be a brand new aluminum line. It's not really a conversion. It's a new line. So that $50 million accounts for part of the spending related to Custines and Colombia and then some of it will drip into next year. As relates steel to aluminum, after Custines, we have two can plants in Spain that are steel, and there are five steel lines in Spain. And if and when we convert those, they would probably be converted – or two of them would be converted and two would be brand new. So we go from five steel to four aluminum, if and when our customers and the pricing differential between tinplate and aluminum would warrant our customers to want to convert. So it's too early right now to say whether that is a 2017 spend or a 2021 spend, I don't think we can comment on that yet.

Okay. Okay. That's helpful. And then I think on the last call you'd flagged aluminum premium as a $12 million benefit for the year. I don't know, is that still accurate? Is it done or could there still be a little bit of incremental benefit into 3Q on premium? Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Yeah. The $12 million, Anthony, is still a good number. We had about $6 million benefit in European Beverage in the first quarter. We got the rest of that in the second quarter. And then beyond that, we also did have a little bit of additional benefit in both the first quarter and second quarter in Brazil. At this point, we're pretty – that's pretty much all washed through and there's not really any benefit in the second half of the year.

Okay. That's helpful. And maybe one last housekeeping issue. Is it possible to say how much lower corporate expense could be a benefit in 2016 year-over-year? Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Well, it's probably going to be... Timothy J. Donahue - President, Chief Executive Officer & Director: Flattish from hereon. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Yeah. It will be a little lower from hereon in. We had some timing things that benefited the first two quarters. And we'll have some benefit in the last two quarters, but most of it is in there.

Okay. That's helpful. I'll turn it over. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from Ghansham Panjabi of Baird. Sir, your line is now open. Ghansham Panjabi - Robert W. Baird & Co., Inc. (Broker): Hey, guys, good morning. Timothy J. Donahue - President, Chief Executive Officer & Director: Good morning. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Good morning. Ghansham Panjabi - Robert W. Baird & Co., Inc. (Broker): Hey, it sounds like production was down in European Food year-over-year. I think you called out weather, et cetera, and Northwest Europe. How much do you think it cost you during the second quarter on a year-over-year basis? And how do you see production shaping up during the back half of the year for that business? Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. So I mean, I don't know if you – how much you follow the international news, Ghansham. But if you saw the floods in France and Germany, they were pretty severe. I think even as far south as Paris. The Seine was over its banks and it looks pretty bad. Could I quantify it? If I told you a few to $5 million, I'm guessing. I don't know, off the top of my head, it was at least 100 million units, which is pretty big for a food operation even a food operation the size of our European Food operation. Now, coupled with that, do we think we're going to bring the production back in Q3? As I commented, I don't know what the impact on the crop yields is going to be in Q3 from the floods. But clearly, we did revise guidance in an upward manner, but we're mindful of the crop yields into the third quarter that we don't know what impact it will have on the crops – some of the crops in France and in Germany. So I don't think it's going to be horrible, I just don't know whether it's going to be no impact or what impact. Ghansham Panjabi - Robert W. Baird & Co., Inc. (Broker): Okay. And then I guess my second question is on beverage cans, looking at the back half of the year, I mean obviously you have a fair amount of complexity with Turkey and the Middle East, et cetera. But can you just kind of give us a regional updated outlook for beverage cans for the back half of the year? What's going on with Brazil and the Americas, so on and so forth? Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. I wouldn't describe as Turkey as complicated. I think Turkey is a tremendous beverage can market, and it looks like Turkey is going to be stable. You can't say that about a lot of places in the world, but Turkey looks like it's going to be stable. But we expect Europe – and we include Turkey in Europe – we expect Europe to continue to grow. We expect the Middle East to continue to have challenges as several of the borders are closed and remain closed. Southeast Asia, we expect to continue to grow. China, for us, we expect to decline, because we purposely are walking away from certain businesses. The market in China probably grows about 5% to 10% this year, but we're not going to chase it. Brazil will be down a little bit. I think we're up a couple percent through six months, and we feel, at least within our portfolio, we feel pretty good for the back half of the year. And I guess North America, Canada, U.S. and Mexico, we expect to continue to grow, and certainly within our portfolio, as we've been fortunate enough to experience over the last couple years, we expect to outperform in North America. Ghansham Panjabi - Robert W. Baird & Co., Inc. (Broker): Okay. Very useful. Thanks so much. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from Scott Gaffner of Barclays Capital. Your line is now open, sir.

Thanks. Good morning. Timothy J. Donahue - President, Chief Executive Officer & Director: Good morning. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Good morning.

Just going back to North America for a minute. Tim, you mentioned the 3.5% North American volume in the market was up 0.5%. What do you think is driving that for Crown versus the market? Timothy J. Donahue - President, Chief Executive Officer & Director: Well, I think it's just customer mix. We've got a very diverse customer mix. We've got a large craft beer business. We've got a large private label business on the soft drink side and some smaller branded soft drink customers, and they all continue to do well. And they all are cognizant of the benefit of the beverage can and the integrity with which the beverage can protects the contents of their products, and they're pushing beverage cans.

Okay. And then moving back to Europe for a minute. I think it came up before but essentially, I think, if I remember correctly, you were able to get some pricing when the market was tight a couple years ago. I mean after everything that's happened in Europe with market share shift, is there potential in the next couple years to potentially get some net pricing in Europe? Timothy J. Donahue - President, Chief Executive Officer & Director: Well, I wouldn't describe – there hasn't been any market share shifts in Europe. I think the shares are the same. The names on the top of the column have changed, but there's been no shift. You'll have to – there's a couple other companies that are bigger than we are in Europe, you'll have to ask them what their plans are.

Right. But I was more wondering about your plans. I mean, you're still a big competitor in Europe, and you did take pricing a couple of years ago. Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah, I don't think as we sit here – and a), I don't want to answer the question. How does that sound? And that's just being honest, right?

Fair enough. Timothy J. Donahue - President, Chief Executive Officer & Director: And b) I think if we're all being honest, we have, what, 20% of the European beverage can market, we're probably not in a position to lead that. You got to ask somebody else who's in a better position.

Okay. Just last one for me on North American Food, I think you said you expected a normal pack for 2016. Timothy J. Donahue - President, Chief Executive Officer & Director: That means not great and not bad.

Right. Timothy J. Donahue - President, Chief Executive Officer & Director: That means it is what it is.

Okay. Anything in particular you'd point out that makes you come to that conclusion? Timothy J. Donahue - President, Chief Executive Officer & Director: No. The comment normal pack encompasses one large category which you don't describe as a pack, and that's soup. And soup is down and it looks like it's going to continue to be down for the balance of the year. So that mutes any benefit from any outsized corn, pea bean pack that you might see. I think we're going to be fine in the second half of the year. I mean we have a – we can see we have a couple customers in the vegetable space that look like they're calling for a lot of cans. I don't know if you saw the CMI data the other day, I think soups are down 5%, we're down 5% in the second quarter, and they were also down year-to-date. So the soup thing is a little concerning, but again, it's a very small business for us at this point. But I think it's going to be an average pack, which means we'll probably do good in vegetables, and it's going to be offset by soup.

Thanks, Tim. Enjoy the rest of the summer. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from Mark Wilde. Your line is now open.

Good morning, Tim. Good morning, Tom. Timothy J. Donahue - President, Chief Executive Officer & Director: Good morning, Mark. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Good morning, Mark.

Tim, any update on the potential for a second line down in Mexico? Timothy J. Donahue - President, Chief Executive Officer & Director: No, Mark. I think it's too early to contemplate the addition for Crown of another line in Mexico. We haven't even completed the first line. We do think the Monterrey plant will be sold out from the start. That does not mean that before we get the line up and running and we hit our efficiency targets through learning curve that we're going to jump in and dump a second line in right away. So I think we'll see how the market evolves. There has been a lot of capacity added to the market or contemplated into the market with our line. The market continues to grow, and we'll take it from there. But I don't think that's a – that is not a 2017 event you need to worry about.

Yeah. Okay. And that Colombian expansion, Tim, can you just size that for us? Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. So we've been in Colombia for 20 years, just about an hour outside of Bogotá. Plant has capacity currently of – well, we're going to add more than 50% capacity. So we're going to add about 400 million units to the plant. And it's a market that's been growing over the last 20 years a lot slower than we had initially hoped for, but over the last couple of years, rapidly growing.

Okay. That's helpful. North American Food can margins were down again pretty significantly kind of year-on-year. Can you give us some sense of where you think those margins on an annual basis are going to settle out? Timothy J. Donahue - President, Chief Executive Officer & Director: Well, again, we're a smaller player in the North American Food business, and it will really depend on the behavior of Crown and our peers in the marketplace. And if we're all happy to make the returns that we're making now, they're going to be what they are now, Mark. But there is, as we've described before, significant excess capacity in the market. There was capacity brought into the market recently that was not needed. We, like the other incumbents, are aggressively defending our business, and that's not a recipe for pricing to go up. Good thing for us it's a small part of our overall portfolio. And I think our margins in the second quarter were about 12%, so that's also not a horrible number for global food pack. So, we're doing the best we can to keep the costs down and try to drive returns as hard as we can in that business.

Okay. And then the final question I had. Just in light of what sounds like a little more activity on the capital spend side, can you give us any thoughts on kind of timing of resumption of share repurchase activity? Timothy J. Donahue - President, Chief Executive Officer & Director: I think we've always described our target level for share repurchase, and I think Tom's talked about it a lot, is right around the 3 times level. I think if you look at our leverage now here at the end of the second quarter, we went from, I think, 4.1 times levered at the end of the first quarter to 3.7 times levered at the end of the second quarter, and we're well on our way to Tom's described target of 3.3 times or 3.4 times by the end of this year, which means that by the end of 2017, you would be at 3 times. So, do you need to wait to 2018 to buy the shares or could you buy them in 2017? Well, you probably could buy them in 2017. There's no magic to 3 times or 3.15 times or 2.98 times. There's no magic to it. I think you could do your own models and you can see the path to us getting around the leverage number we've previously described and resuming such activity.

Okay. That's helpful. Good luck in the second half of the year, Tim. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you, Mark.

Thank you. Our next question comes from Debbie Jones of Deutsche Bank. Ma'am, your line is now open.

Thank you. Hi. Good morning. Timothy J. Donahue - President, Chief Executive Officer & Director: Hi, Debbie.

I was wondering if you could talk about the guidance raise. Is this just the result of Q2 coming in better than expected? And specifically on the FX gain, was that what you were expecting in your forecast? And then, two, how should we think about interest expense in that going forward? Just because it came in a little bit below what I think we and the Street were expecting this quarter. Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. I'll let Tom talk about interest. I think on the raise of the guidance, so both the first and second quarter, I think we clearly outperformed the prior year and perhaps even a little bit better than our current year expectations. Always difficult to do that revisiting of your guidance after Q1 because there's so much of the year left. I think we're probably a little bit more confident in doing it now, but it's a combination of Q1 and Q2, not just Q2. The FX, we haven't talked about the FX. So we have a number of operations around the world as you're well aware of. They generate a lot of cash. We either use that cash in country for capital projects and/or plan to dividend it back to the parent. In a lot of locations where we are concerned about currency movements and where we experience the negative effects of a stronger dollar on the revenue and segment income line, we have cash. So we do the best we can to convert that cash to U.S. dollars as early in the process that we can and then the dollars sit in country locally until their dividended back or used for capital, and they act as a natural hedge against the impact of currency movements on the revenue and segment income line. And clearly, that has benefited us in the second quarter and may or may not benefit as we go forward. But if you get a little bit of loss on the FX line, you probably have a little bit of gain on the segment income line. So it's how we try to hedge ourselves. And so all of that, as you look at all of that, it leads us to our willingness at this point to raise guidance. With respect to interest, I'll leave it to Tom. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Yeah. I saw your note, Debbie. You were thinking about $230 million or so of interest, and that sounds about right. I'd say somewhere between $230 million and $232 million for the year.

Okay. Thanks. That's helpful. And then my second question, I'd like to get your thoughts on the industry supply and demand balance in the U.S. And specifically because, one, you are adding some specialty can capacity obviously in New York. And then longer term, I'd like to get your thoughts on the potential for your operations in Mexico to supply, potentially, like the southwest and going forward. Timothy J. Donahue - President, Chief Executive Officer & Director: Well, the first one I'll deal with is Mexico. We have a business in Mexico – or we have an infrastructure with plants in Mexico, both legacy Crown and the newly acquired EMPAQUE operations which are entirely consumed by demand in Mexico and a little bit in Central America. But mainly Mexico, we do not have capacity or opportunity for any of our Mexican activity to support the United States. As we – we have talked before about our specialty presence in the United States, and while we have one at about 12% or 13% of our overall portfolio, it's lower than the overall market. And geographically, we have some locations that don't serve all of our customers across the United States and Canada. So that's the reason for the new plant and the specialty presence in New York. I don't think I want to talk about potential for share shifts. I don't think we're contemplating that.

I guess my question is also to understand if you think there could be more opportunity for you to add more specialty can capacity in the U.S. or North America just given that you do have less of a presence and not as the category that seems to be growing. Timothy J. Donahue - President, Chief Executive Officer & Director: Well, it will depend how much the category grows, and it will depend on how much the marketers want to change their overall marketing approach from the standard 211-diameter beverage can to a slimmer can. And I don't think beyond Nichols that we're contemplating any more added capacity to North America. And when I say North America, I mean U.S./Canada.

Okay. Great. Thank you. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from Tyler Langton of JPMorgan and Chase (sic) [JPMorgan Chase] (34:04). Your line is now open.

Yeah. Good morning. Thanks. I think you mentioned volume growth in Central and South America was up 5%. Can you just talk about the volume growth that you're seeing in, say, Mexico and Brazil and in any other country in the region? Timothy J. Donahue - President, Chief Executive Officer & Director: No. There's some competitive dynamics that we are working with, and we don't feel comfortable sharing that information.

Okay. Just then Asia Pac, I mean, with sort of – just given the dynamics that are going on over there, for the balance of the year, do you think you can keep profits flat just given, sort of, the growth you're seeing in Southeast Asia and then the pricing pressure in China? Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. We're flat – if I had the – well, we're flat to the first half. If I had to put a pin on what we think we're going to be this year versus the full year last year, I'd say we'll – it could be flat to down $2 million to $4 million. It's plus or minus a few million. We'll just see how the – we'll see how the challenges in China, how much of that we can offset with the growth in Southeast Asia. You're asking me to – well, I'm trying not to be too precise because, frankly, I don't know.

Okay. No, that's... Timothy J. Donahue - President, Chief Executive Officer & Director: It will be close

Yes – no, that's helpful. And then, in Southeast Asia, is pricing there still fairly disciplined? Are you seeing any pressures in that region? Timothy J. Donahue - President, Chief Executive Officer & Director: No. I think pricing is challenging everywhere in the world. We're in a business where we provide a very technologically advanced, highly engineered product with a lot of integrity for the contents. And when I say challenged, I don't believe we make enough money for the service we provide to our customers who are the consumers. So, there are markets where we have better pricing than others, but in all markets, pricing needs to go up to reflect what we do for the customers and the consumers.

Got it. Okay. Thanks. And then just final question for North America Food. Going forward, is there potential to take further costs out in that business to improve profits, or outside that sort of volume and pricing, should profits kind of remain around current levels? Timothy J. Donahue - President, Chief Executive Officer & Director: I think that – we closed two plants in North American Food business last year, one in Ontario, one in Maryland. We do not see – well, there's always production improvements we can make, and we can become productive and efficient within the properties we have. But there is no further property reduction, and as I said earlier, it's a small business, but we are committed to it, we're going to defend it. And we think we do quite well given the supply-demand dynamics in the business, and we're going to continue to try to do that well.

All right. Great. Thanks so much. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from Chris Manuel of Wells Fargo Securities. Your line is now open.

Good morning, gentlemen. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Good morning, Chris.

Just a couple questions for you. One, could you maybe give us a better sense of where you are by a few of your key regions geographically on utilization rates. So as an example, you continue to grow nicely in Southeast Asia. It sounds like Continental Europe continues to grow, et cetera. Where do you feel you stand when you look at, say, U.S./Mexico put together, I guess, Brazil, Europe, a few of these regions' utilization, might these be opportunities you look forward the next 6 months to 12 months, 18 months, 24 months, what have you, that you need to add a little more capacity in some places? Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. So Chris, I think – the only thing I'm going to say to that, because again I don't want to answer the question because there are changing competitive dynamics across the global beverage can industry. And it might be that you're all going to have to get used to us being less fothcoming in the future. But that's just going to have to be how it is. The only thing I would say to you is we are well utilized in every region, with the exception China, where we have made the decision to not sell cans at prices below with which we believe we should receive for that service.

All right. When you look at the Mexican market today EMPAQUE seems to have been doing pretty well. I'm guessing they continue to perform well. As you look at – you talked about the line being sold out as it comes on stream. Are you feeding some cans into that market today to kind of support that new Monterrey facility coming up? Timothy J. Donahue - President, Chief Executive Officer & Director: No. We are running different size cans in one of the other facilities, and when Monterrey comes up, we'll convert one of the lines to be permanently on one size only as opposed to a swing line. So that'll change the size, complexity and those cans may go elsewhere.

Okay That makes sense. Thank you. Last question I had was on the pension side, as we look ahead to 2017, I know you weren't – there's no cash funding requirement. I think you had some holiday left there. What are your thoughts as we – I know it's early yet to look into 2017, but can returns kind of help out enough and interest rates maybe moving lower, et cetera. Tom, what are your kind of initial thoughts that way? Thomas A. Kelly - Senior Vice President & Chief Financial Officer: On cash?

Yes. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Yeah. We did a five-year projection in our 10-K last year, and you're right, we've been running about $80 million. We spiked up a little bit to about $100 million this year. And assuming all of our assumptions last year are right, we should return back down to about $80 million or so next year in cash contribution.

Okay. Thank you. Good luck, guys. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Okay.

Thank you. Our next question comes from the line Chip Dillon of Vertical Research Partners. Sir, your line is now open.

Yes. Hi, Tim. Hi, Tom. Timothy J. Donahue - President, Chief Executive Officer & Director: Hi, Chip. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Hi, Chip.

First question is we've been hearing about this sort of gradual drip drip erosion of the market in China, and I know that most of the companies us on the call look at have backed away, which obviously is the thing to do given you're not being paid for what you're doing. Who is actually continuing to add the capacity to grow with the market, would you describe them as state-owned enterprises or is there another way you would categorize the folks that are actually adding the capacity to meet this demand growth. Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. I don't – I think I could clearly say that I don't think any Americans are, if that helps you. How you differentiate between what is publicly state-owned and what is state-supported on a local basis is difficult, but I don't think any foreigners, be they Americans or Japanese or Thais or anybody like that, is adding any capacity. I think they are Chinese. Now, whether they're state-owned or just – they receive favorable financing, who knows.

Okay. Got you. And then shifting gears, looking at the working capital change. It was kind of interesting how much that helped you in the second quarter. I know normally that's a back half of the year phenomenon. I was just sort of checking, for example, receivables from the first quarter were down like $51 million. In the last four years, they tended to average going up $100 million. It would seem like if nothing changes from the typical year with the second quarter as a leaping off point, you would be able to really get a lot more than just $50 million in terms of cash flow in for the year overall, unless you're telling us you pulled in some of the benefit into the second quarter from what you normally would have seen in the back half. Timothy J. Donahue - President, Chief Executive Officer & Director: Yeah. So I think one thing that's happened, Chip, and then I'll let Tom comment on some other activity. I think one thing that's happened is our – the mix of our business has evolved tremendously over the last several years. And when I say the mix, I mean the mix of beverage cans to the total portfolio versus non-beverage cans, and specifically, food. So, as a percentage of our overall revenues, beverage is far greater now. And the build of working capital for beverage is nowhere near it is based on the seasonality of the food business, and so that's one area. And then I think Tom mentioned earlier, we thought we did a little better in payables. I don't think – Tom, you may want to elaborate on that, so... Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Yeah. First, Chip, I mean in the quarter, you're right. We're up considerably on last year. But if you look at the year-to-date, the difference is not as significant. But I think in the first quarter, we talked about that, and we said we had some timing differences on receivables factoring, and it would kind of smooth out, which it has largely done. And then beyond that, yes, we are running a little ahead on working capital as we talked a little about earlier. And that's one of the reasons why we've upped the guidance as far as the working capital benefit goes in the free cash flow for the year.

Okay. And then just lastly, looking at interest rates, let's say you get a 200 basis point or 150 basis point increase across the curve. Obviously, that's going to help you – I believe, help you on the pension side. But when you look at the interest expense number, and also, you mentioned factoring, will factoring become less attractive and therefore you might pull more cash into – put more cash into working capital to avoid what would be interest expense? And how sensitive right now would you say your debt is to changes in short-term rates? Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Anything we do on the factoring side goes to pay down the revolving credit facility. So presumably, if the rate went up, both the facility and the factoring rates would both increase. So it wouldn't make sense to do less factoring. We would continue to do what we're doing because you're just swapping out rates which are effectively changing by the same amount. And as far as – we have a fair amount of floating debt. I guess if you include the securitizations and the factorings in that calculation, we're probably north of a 40% floating rate debt.

And at this point, it looks like that's where most of the debt reduction that you talked about earlier, getting down to the 3 times by year-end 2017, would come from, not to say that you wouldn't do an extension if the rates were right longer term, but I guess that's where initially you'll be reducing the debt, right? Thomas A. Kelly - Senior Vice President & Chief Financial Officer: That's right. The pre-payable debt we have is the term loan debt, and that is floating.

Got you. Thank you. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from Philip Ng of Jefferies. Your line is now open.

Hey, guys. Are you seeing any acceleration of the pack mix shift from food cans to other substrates? Demand in food cans generally have been pretty weak, particularly in North America. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Did you hear it? Timothy J. Donahue - President, Chief Executive Officer & Director: No. I didn't hear the question. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Could you repeat it, Phil? It broke up a little bit.

Yeah, sure. My question was are you seeing acceleration of the pack mix shift from food cans to other substrates, just because demand in North America's been pretty weak for some time now. Timothy J. Donahue - President, Chief Executive Officer & Director: Well, I don't think there's – let me see how I can answer this, Phil, sounding stupid, which I'm pretty good at. I don't think there's – we haven't seen any – I don't think we believe there is a pack mix shift from food cans to other substrates.

Okay. Timothy J. Donahue - President, Chief Executive Officer & Director: I think what you might have in certain regions of the country, Phil, and perhaps, that's on the coasts, and you focus on the big cities. You go out to restaurants more often, you're not cooking at home. So you're not opening up cans of peas and corn and tomatoes. You're either buying prepared meals and/or you're going to restaurants more often. And that's not something that happens in the middle of the country so much, but I think in some of the larger, populated, well-off urban areas, I think that's perhaps happening. And so that leads to a small decline in food cans year-over-year, which if you look at it over a 10-year or 15-year period looks quite large, but it's – unless you look at it over a 15-year period, you don't realize it's happening to you because you don't feel it so much. But we haven't seen anything – we haven't seen any of the products that we sell – that we've been selling to our customers for the last couple of years going to other types of pack at this point. There's been a – there was a small move in some of the soups and broths to the Tetra, but not a lot. And then offsetting that, you have pet food which is growing nicely year-over-year. So in total, cans are – they're relatively stable. When I say relatively stable, plus or minus 1%, 2%. Interesting, there was an article of – not to get off topic here – there was an article in the New York Times real estate section this past Sunday, you ought to go read it if you haven't seen it. And basically, the broker was saying that people, when they look for an apartment in New York, they want to be near restaurants. So, that would be the only thing I can point to, but no pack mix shift change.

Okay. That's helpful, Tim. And I guess we're obviously seeing steel prices move up here. I don't have a good read on tinplate, doesn't really move that much intra-year for you guys. Do you have a view how that's going to shake out next year and do you view that as an opportunity for your margins down the road, anything that's steel related? Timothy J. Donahue - President, Chief Executive Officer & Director: Phil, let's back up a second. One of the – we described in the earnings release today that revenues were down because of currency and the pass-through of raw materials, and tinplate does move for us. Tinplate across our tinplate products businesses was down high single digits in North America food and aerosol, and in Europe was down mid single digits.

Sure. Timothy J. Donahue - President, Chief Executive Officer & Director: So that's a significant movement to the benefit of our customers and the cost of their throughput to get products on the shelf, so it does move. What it's going to do next year? Yeah. So, some of the U.S. steel companies have been petitioning the government for stronger protections against imported steel, and they're hopeful. And so people have written that perhaps tinplate pricing may go up next year. We hear this talk every year. And sometimes it goes up, sometimes it doesn't, sometimes it goes down. And we'll see where it's going. I don't – as we told you before, we try to look at our absolute margin. We try not to get too excited about percentage margin, obviously, we like when the percentage goes up rather than down, but the absolute margin is more important, just given the sensitivity to the pass-through. And I think it's too early to describe what we think tinplate will do.

Okay. Just one final one for me. Brazil, at least when we look at the industry data was reasonably strong in 2Q. Did you see any lift from the Olympics? And did I hear you correctly? You're expecting demand in Brazil to be down on a full year basis. Thanks. Timothy J. Donahue - President, Chief Executive Officer & Director: I don't think we've seen any lift from the Olympics. And I – it's a very short period of time confined to a small region of a very large country. So I don't think there's any lift. What we said for Brazil is we expect demand for the can industry to be down for the full year, we expect it will do well in the back half of the year.

Okay. So, well, I should assume at least positive. Is that a good way to think about it? Timothy J. Donahue - President, Chief Executive Officer & Director: Yes.

Okay. All right. Thanks a lot. Timothy J. Donahue - President, Chief Executive Officer & Director: Thank you.

Thank you. Our last question in queue is coming from George Staphos, Bank of America Merrill Lynch. Sir, your line is now open.

All right. Thanks, guys, for taking my follow-up. Just two housekeeping items. First, just on pension, Tom or Tim, the $80 million comment about next year, presumably that's based on your analysis as of last year. Do you have a view on what rates have done – what rates might mean for the contribution next year where you feel pretty good about the $80 million at this juncture? And the second question, just to Debbie's earlier question, that interest expense guidance, was that gross or was that net of interest income? Thank you and good luck in the quarter. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: The interest expense is net. And as far as the pension, I think we are fairly comfortable with the $80 million at this point, but I mean until we go through a complete calculation and analysis at the end of the year, we couldn't really lock in on it. Some of the bigger numbers we pay we have pretty good visibility on and that's why I feel fairly comfortable with that number at this point.

Okay. Thank you, guys. Thomas A. Kelly - Senior Vice President & Chief Financial Officer: Thanks George. Timothy J. Donahue - President, Chief Executive Officer & Director: Dale, I think that's the end of the call and we look forward to speaking with everybody again in October at which time we'll discuss the 2016 third quarter results. Thank you very much.

Thank you. That concludes today's conference. Thank you all for your participation, you may now disconnect.